Does anything rattle Global alcoholic beverages behemoth, Diageo? From the outside, looking in, it would appear as though nothing does.
In December 2024, the High Court in Nairobi summoned 3 top EABL officers – CEO Jane Karuku, former Director Drew Cowan and Sales Director Andrew Kilonzo – for sentencing, in a case where the trio had been guilty of contempt of court.
It was the High Court that had found the three officers guilty of contempt in that first instance. A sentence for contempt of court can be upto 6 months in jail without the option of a fine. The 3 officers therefore immediately filed an appeal against that ruling.
East African Breweries (EABL) is the East African subsidiary for Diageo, domiciled in Nairobi and which then owns and manages Kenya Breweries Ltd
(KBL), Serengeti Breweries Ltd (Tanzania) and Uganda Breweries Ltd (UBL).
EABL also has affiliated companies like UDV, International Distillers Uganda, EA Maltings Ltd, among others.
It is important to illustrate the stature of this company so that it is possible to understand just what a clusterfuck it has turned into, to have its top officers cited for contempt by a Kenyan court.
At this level, such officers ought to be like Caesar’s wife, above reproach.
Matters ought not to have been allowed to escalate this much.
A bit of background though.
In 2016 EABL subsidiaries (KBL and UDV) terminated their distribution agreement with one of their biggest distributors, BIA TOSHA Ltd. The distribution zone covered by Bia Tosha Ltd extended from Namanga, Bissil, Kajiado, Kitengela, Athi River, Industrial Area, South B, Nairobi West, Kenyatta, Langata, Rongai, Kiserian, Magadi, Upperhill, Ngong Road, Hurlingham, Kawangware, Satellite, Dagoretti and a few others.
KBL has 120+ similar distributors across the country.
As you can imagine, this zone covered by Bia Tosha Ltd was prime alcohol real estate, and quite a number of people were salivating at the prospect of getting a piece of the pie.
BIA TOSHA ltd had diligently served these areas without problem for more than a decade before this decision to terminate their contract was made.
Some genius inside EABL clumsily engineered the exit of BIA TOSHA Ltd and replaced it with 3new companies namely Tony West Ltd, Ngong Matonyok Wholesalers Ltd and Manara Ltd, who carved up the entire zone between them.
However, before these new distributors were signed, BIA TOSHA had gone to court and obtained orders, which kept them on as distributors pending determination of their suit.
Would you believe, despite already having been served with that court order, probably in adrenalin-fueled impunity, EABL said fuck it! and went ahead to sign fresh contracts with these new distributors?
There are rumors that EABL and the new distributors, on the advise of their lawyers, backdated the contracts, to before the date of the court order in an attempt to circumvent the aforementioned court order.
In order to try and complicate the matter even more for Bia Tosha Ltd and for the High Court, EABL legal team advised the new distributors to file a petition of their own in court, seeking orders to compel them (EABL/KBL), not to kick them out of their newly acquired distribution zones.
They claimed that they would suffer irreparable harm if they were ejected.
Yeah right!
A pattern begins to emerge of consistently bad legal advise being given to the leadership of EABL and its Kenyan subsidiaries.
The court immediately saw through this ruse.
At the High Court, Justice Josephine Mongare dismissed the petition by the 3 new distributors. Justice Mongare reasoned that there existed an earlier court order that blocked KBL from terminating the BIA TOSHA Ltd contract, pending the courts determination of the dispute between said Bia Tosha Ltd and EABL/KBL.
It was this ruling that ought to have paved the way for EABL/KBL to terminate the contracts of these new distributors, orders that they have glibly ignored, and which brought on the contempt of court.
It would appear that the interests of certain individuals, within EABL and adjunct to it, supercede the laws of Kenya such that the removal of these new distributors was unconscionable to these powerful people despite the presence of a court order.
The appeal against the contempt of court ruling has dragged through Kenya’s notoriously slow court system for an astounding eight (8) years, winding its way up from the High Court, through to the Court of Appeal before finally landing at the apex Court, the Supreme Court.
The Supreme Court held that the 3 officers were indeed culpable and had properly been found guilty by the High Court in a matter where it was evident that they had mischievously and callously disenfranchised a former alcohol distributor.
An attempt by EABL lawyers to get the Supreme Court to review its own decision came a cropper as it was rejected, thereby sending the matter back to the High Court for determination of a suitable punishment.
True to form, when the High Court summoned the three senior EABL officers for a sentencing, they went back to court to appeal this decision, a matter that is now still in court for determination.
Sadly, even now, 9 years later, the main suit to discuss the prejudiced removal of Bia Tosha from its territory has not began. Bia Tosha Ltd is seeking upwards Kes. 1 Billion in its suit,
There can only be one outcome here, and it does not look pretty for these EABL officers, as the saying goes, the arc of moral universe is long, but it bends towards justice.
Something is really wrong in that EABL ecosystem. A lot has gone terribly wrong in the last decade, since the arrival of Jane Karuku, first as MD at KBL and later promoted to CEO of EABL. The symptoms of this malaise have been showing over that decade.
Surely, isn’t this the same company that gave the World Peter Ndegwa (Safaricom CEO) or Joe Muganda (Chairman NMG & Stanbic) or Gerald Mahinda (MD Kellogg Asia Pacific)?
Jane Karuku unfortunately, doesn’t appear to have any other ambitions after her lacklustre 10-year tenure at EABL/KBL. This makes her extremely dangerous and unstable, like a President that has won a 2nd and final term of office.
Why has Karuku been allowed to turn EABL into, to quote Tolkien, “ a thatched barn where brigands drink in the reek, and their brats roll on the floor among the dogs…?”
To illustrate this, barely a year ago, Diageo had to intervene directly, bypass CEO Karuku and sack a former Commercial Director, for his activities that had brought the organization into disrepute.
Most of the problems appear to emanate in the Legal Affairs department, which is unable to expeditiously and sensibly resolve disputes without allowing them to escalate to court.
Most notably is that the Head of Legal Affairs at EABL, Rowlands Nadida, arrived at KBL at around the same time with Jane Karuku in 2015, and with their arrival, massive destabilization in the companies begun.
And the symptoms continue to emerge, more virulently, with each successive episode.
Just last week, EABL was in court for a matter it recently filed against Kenya Revenue Authority (KRA) seeking a refund of close KES. 800m relating to over-payment of VAT all the way back in 2018.
Through EABL Legal Director Rowlands Nadida, and the law firm of Iseme, Kamau and Maema Advocates, they have now, 7 years later, sought to compel KRA to refund those over-payments.
The main thrust of their argument is that there had been a discrepancy between the rates applied by KRA in their tax payment portal and those officially gazetted by the Government.
VAT is paid via an online portal that is managed by KRA, and the applicable rates therein are embedded in that portal. Only KRA can amend these rates
Presumably in order not to incur the ridiculously high penalties that are levied on late payments of VAT,or the criminal charges that they risked for non-payment, EABL probably chose to pay using the higher VAT rate, hoping to regularize the issue later.
According to court documents, when EABL wrote to KRA much later, seeking a rebate on the over-payment, KRA, true to character, responded by quoting some innocuous provision in the Act and claiming that EABL is not eligible for such a rebate.
EABL and KRA have this love-hate relationship going.
Where did this money, close to Kes. 800m come from? Obviously it was neither budgeted nor provided for in their company budgets
If the money came from the company cash reserves, how did the EABL leadership explain it to Diageo in the intervening 7 years?
In any event, the relationship between EABL and KRA ought to be symbiotic and such a matter ought to have been resolved then, in 2018, with physical meetings between the organizations (if need be), high-level interventions by top Board members, involvement of other Government agencies and operatives etc.
This is after all, EABL that we are talking about here, and not some run-off-the-mill craft brewery.
The question at the back of everyone’s mind is, why didn’t this happen?
Ironically, in a case of lightening striking the same place twice, EABL subsidiary KBL went through a similar debacle with their distributors some 5 years ago when withholding VAT (WHVAT) was reduced from 6% to 2%.
The system is set up such that KBL themselves collect cash directly from distributors bank accounts.
To your question, yes, KBL have management rights for all distributor bank accounts and they therefore pay themselves directly from these accounts -It is a a pretty sweet set-up if you ask me. All the 120+ KBL distributors in Kenya are compelled to open bank accounts with specific banks, and those accounts are jointly managed by the distributor on the one hand and EABL on the other.
With the distributors, KBL inexplicably failed or neglected to recognize that the KRA portal had now amended the WHVAT rate from 6% down to 2% for a period of three months. KBL therefore continued paying from their own bank accounts at 6% whereas the law had been amended.
The law now stipulates that a portion of WHVAT is remitted direcctly by the distributor, while the other portion is paid by KBL, just for checks and balances.
The distributors reacted instantly to the change in the applicable rate of WHVAT, and begun to file their VAT returns through the same KRA portal at the statutory rate of 2%.
By the time KBL realized this anomaly in 2021, they were over ksh 2 Billion out of pocket.
In this case, and since KBL had jurisdiction over distributors bank accounts, they simply raised debit notes for each of the 120+ WHVAT-registered distributors and coerced them to pay this money over a 7 month period in 2022.
This here is a real demonstration of abuse of dominance on the part of KBL.
To be transparent, the Kes. 800m being pursued in court ought to belong to distributors, past and present, if this is the same VAT over-payment that is being sought by KBL.
In the contracts with distributors,it is stipulated that bank and account balances be confirmed and closed quarterly and once confirmed, cannot be reopened except in cases of fraud.
In this case, distributors had confirmed balances for 8 successive quarters before they discovered this anomaly and they “re-opened”the matter to suit their whims.
It is ironical that KBL/EABL now find themselves in the exact same position only that now, unlike in the previous scenario with their distributors, they are not the dominant party and have to seek redress through the selfsame court system.
The same court that they have shown the literal middle finger and that has found 3 of its officers guilty of contempt.
Imagine trying to obtain a favorable hearing before the same court whose orders you treated with so much disdain!
There is a likelihood that this case may also take over 10 years, much in the same way that most cases against KBL have, through the planned and concerted machinations and time-wasting antics of EABL legal department and legal services providers.
That is how the massive EABL legal budget is milked over many years.
KRA meanwhile should also investigate a matter in which KBL has been deducting excess amounts of VAT in the invoices to its 120+ distributors.
These distributor invoices should simply work out the cost + VAT to arrive at the total, but have oddly been manipulated to collect additional VAT from them. If you took a calculator and worked out the VAT payable, you realize a massive discrepancy. This discrepancy means that , someone in KBL must be siphoning this “extra collection” to some individuals accounts.
In any event, the distributors are too scared to make an issue out of it, fearing such reprisals as the annexation of their distribution zones and arbitrary cancellation of their contracts, as happened with Bia Tosha Ltd and others.
More symptoms of malaise continue to rear their heads, as a hallmark of Jane Karuku’s poor management style,
For one, there has been a spike in needless litigation. The only beneficiaries of these appear to be a few, well-connected and perennial law firms. Granted, EABL does have a mouth-watering budget for such litigation, why should it be used so destructively?
The same law firms consistently appear in a majority of the cases involving EABL, despite there being a stable of other top-notch law firms, these others only serve to make up the numbers, shortlisted but rarely engaged.
Could this zero-grazing of law firms be the reason for systemic bad legal advice given to CEO Jane Karuku?
Since her arrival, EABL has become the only blue-chip company in Kenya that is managed like a roadside kiosk. Vested interests appear to reign supreme over professionalism.
As long as a supplier, legal services provider, agency etc has a benefactor or godfather inside EABL, they do not risk losing their contracts, even when their performances have become lacklustre over the years.
Other blue-chips keep refreshing their capacity by shuffling their suppliers, providers and agencies every couple of years, but not at EABL. Here, you are more likely to lose your contract if a competitor has close association with someone influential inside the company and has been eye-balling your space.
Whilst the company continues to be highly profitable, mainly due to near monopoly status and unfair trade practices in dealing with perceived competitors, it has allowed an unprofessional corporate culture to fester, where the company appears to strive to operate at the corporate basement level.
In the meantime, everyone at EABL is trying to hold steady, nobody wants to rock the boat, hoping that Karuku retires sooner rather than later, and with her retirement, the washing away of the filth that she dragged into what was an erstwhile gem of an organization.
Most employees only task now is to survive her. Imagine this being your sole legacy in such a company.
